Ballantyne Reports Q3 Results Reflecting Growth in Digital Equipment and a Contribution from Cinema Screen Sales

October 31, 2008

Source: Ballantyne

Ballantyne of Omaha, Inc., a provider of digital and cinema equipment and services, today reported financial results for the third quarter (Q3) and nine months ended September 30, 2008.

Net revenues in Q3 2008 were $12.3 million, a 2.4% decrease from net revenues of $12.6 million in Q3 2007, principally reflecting an expected decline in film-based products. This decline in sales was offset by digital cinema equipment sales which rose to $1.6 million in the period versus $1.1 million in Q3 2007, as well as the contribution from the Company's screen business, Strong Screen Systems (SSS), acquired in mid-October 2007, which contributed sales of $1.5 million in Q3 2008. Revenues from Strong Technical Services were consistent with 2007 levels at $0.8 million as the growth in digital cinema services, which rose to $0.3 million from $0.1 million in Q3 2007, was offset by lower levels of service revenues related to traditional film projection systems. Specialty lighting sales rose to $1.2 million during Q3 2008 compared to $1.1 million in Q3 2007.

The gross margin for the period increased to 17.4% versus Q3 2007 gross margin of 16.6%, principally reflecting the margin contribution from Strong Screen Systems as that unit benefits from increased demand for its large format screens as well as specialty silver screens utilized in digital 3-D cinema systems.

Q3 2008 selling, general and administrative (SG&A) expenses increased 34.5% to $2.8 million compared to $2.1 million in Q3 2007, reflecting a variety of factors including the addition of SSS overhead, health insurance costs, higher compensation expense, and increased costs associated with audit and compliance services.

For reasons outlined herein, Ballantyne reported a Q3 2008 net loss of $0.3 million, or ($0.02) per share, compared to net income of $0.1 million, or $0.01 per share, in Q3 2007. Per share results Q3 2008 and Q3 2007 are based on a weighted average number of diluted shares outstanding of 13,933,152 and 14,110,477, respectively.

John P. Wilmers, President and CEO, commented, "The exhibition industry's transition to digital projection technology continued to impact our traditional cinema business as expected during Q3, and sales of digital projection equipment continued to expand. Though the rollout of digital cinema continues to progress at a modest pace as the industry awaits the formation of sufficient capital to fund large scale rollouts, Ballantyne made progress during the quarter in our cinema screen business, underscoring the strategic importance of the unit we acquired in October of last year.

"In the first nine months of 2008 our Strong Screen Systems business has already eclipsed its full year 2007 sales, a performance that demonstrates the industry-leading products and service they provide as well as the expanded distribution reach provided by Ballantyne.

"Additionally, we are engaged in productive dialogues with leading cinema industry customers regarding digital cinema service opportunities. Our 'agnostic' approach to services is enabling us to pursue service opportunities without regard to brand of projector being deployed. Of course these opportunities await larger scale funding prior to their commencement.

"On the cost front, we continue to evaluate strategies to streamline costs related to our legacy film products business and improve overall operating performance while still being able to provide our customers with superior service."

For the nine-month period ended September 30, 2008, net revenues rose to $40.1 million compared to $38.2 million a year ago. Gross profit in the first nine months of 2008 amounted to $6.5 million, or 16.2% of net revenues, compared to $7.3 million, or 19.1% of net revenues in the same period in 2007. SG&A rose to $8.0 million from $7.3 million (including a $0.6 million goodwill impairment charge) in the year-ago period. The results reflect the addition of SSS SG&A expense of $0.7 million, higher professional fees pertaining to audit and compliance services and higher salaries and benefits.

The net loss for the first nine months of 2008 was $0.7 million, or ($0.05) per diluted share, compared to net income of $0.5 million, or $0.04 per diluted share, in the comparable 2007 period. Per share results for the first nine months of 2008 and 2007 are based on a weighted average number of diluted shares outstanding of 13,894,300 and 14,096,263, respectively.

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